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AICPA Exam CPA-Business Topic 1 Question 84 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 84
Topic #: 1

[All CPA-Business Questions]

For the next 2 years, a lease is estimated to have an operating net cash inflow of $7,500 per annum, before adjusting for $5,000 per annum tax basis lease amortization, and a 40% tax rate. The present value of an ordinary annuity of $1 per year at 10% for 2 years is $1.74. What is the lease's after-tax present value using a 10% discount factor?

A$2,610

B$4,350

C$9,570

D$11,310

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. Return on investment equals net income divided by average invested capital:

Choices 'a', 'b', and 'd' are incorrect, per the above calculation.

by Cecilia at Apr 10, 2024, 06:17 AM

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Freeman

2 months ago

I bet the person who wrote this question has a wicked sense of humor. Reminds me of that time my accountant told me a joke about depreciation.

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Irving

25 days ago

C) $9,570

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Gracia

28 days ago

B) $4,350

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Gary

1 months ago

A) $2,610

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Ora

2 months ago

Is it just me, or does this question make you want to take a nap? I need some coffee to get through this.

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Johnna

2 months ago

Hmm, I think I need to go through this step-by-step. Gotta love those tax basis adjustments!

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Domingo

1 months ago

User 3: After that, we apply the 40% tax rate to get the after-tax cash inflow.

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Ronny

1 months ago

User 2: Okay, then we subtract the tax basis lease amortization.

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Fletcher

2 months ago

User 1: Let's calculate the operating net cash inflow first.

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Tula

3 months ago

Wow, this looks like a tricky one! I better brush up on my net present value calculations.

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Jerry

2 months ago

Alica: It's $4,350. Option B.

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Reita

2 months ago

Nicolette: So, what's the answer?

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Trina

2 months ago

Alica: And finally, use the 10% discount factor to find the after-tax present value.

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Alica

2 months ago

Nicolette: After that, we apply the 40% tax rate.

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Nicolette

2 months ago

User 2: Agreed. Then we can adjust for the tax basis lease amortization.

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Kami

2 months ago

User 1: I think we need to calculate the operating net cash inflow first.

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Caprice

3 months ago

I'm not sure, but I think the answer might be C) $9,570.

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Mignon

3 months ago

I disagree, I believe the correct answer is D) $11,310.

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Franchesca

3 months ago

I think the answer is B) $4,350.

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